U.S. Retail Sales Drop, Hinting at Shift to Spending on Services

• S. retail sales declined in May, after a stimulus-related splurge in the prior two months, suggesting consumers are starting to shift more of their spending to services as the economy reopens. The total value of retail purchases fell 1.3% in May following an upwardly revised 0.9% gain in April, Commerce Department figures showed Tuesday. 
• For the last year, demand for goods has been propped up by elevated savings supported by fiscal stimulus, bringing total retail sales well above pre-pandemic levels. The May decline in retail sales suggests that as travel picks up and entertainment venues reopen, spending on goods is starting to moderate. 
• The total value of retail sales was $620.2 billion in May, well above the almost $526 billion in February 2020, before the pandemic. The sales data precede Wednesday’s conclusion of the Federal Reserve’s two-day policy meeting. 
• Investors and economists will be watching to see whether the Fed adjusts its outlook for scaling back monetary support as price pressures build and areas of the economy -- like spending -- improve more quickly than expected. 
• While consumer spending is expected to continue strengthening, the pace will probably moderate as enhanced unemployment benefits expire and stimulus checks are spent. A sustained pickup in inflation may also cause consumers to limit discretionary expenditures.

(Source: Bloomberg)